If you're going to judge it based on your existing preconceptions, of course it's going to come up short.

Windows: The button makes the open window fill the screen.

Mac OS: The button instructs the app to make the window larger to fit the open document.

With larger and larger desktop screens (27" iMacs, 30" Cinema Displays), the old idea that you'd want the one window to fill the screen doesn't hold as often. Then came the rise of the laptop and it does hold again. So Lion gained fullscreen.

This doesn't mean it wasn't frustrating, or badly done by many programs, but I object to you describing one way as "what should happen" as if there is a standard, or as if OS X < 10.7 claims to do fullscreen but fails to. You're buying an App to make it work like another system, because you prefer that behaviour.